and on a side note - this "austerity" BS must stop. It is destroying countries. Any person with common sense will tell you that imposing austerity in the face of a depression is a very very bad idea. You do not need an economics degree to understand that. I wonder how people in the IMF get the jobs they have sometimes...

Arguments for austerity

1) The main reason - it reduces government spending, hence lowers the budget deficit. CETERIS PARABIS...

Arguments against austerity

1) Note CETERIS PARABIS.....lets say in year 1 austerity is passed. It reduces spending, hence the budget deficit during that year. But the world is not ceteris parabis, and in year 2 tax revenues FALL as a result of austerity, offsetting austerity. Kind of silly, if you ask me, although we need numbers to confirm which effect is stronger.

2) Pressing forward austerity in unstable countries prone to protesting/rioting like Greece, France, etc... is just a bad idea, and is bound to end up with extra costs to the economy - think of the strikes, violence, etc....i wonder the economic effect of all that protesting? Must be losses of millions of euros a day as a result, that could otherwise not be lost if such draconian measures were not imposed that stifle any prospects of growth.

3) All this austerity is simply kicking the can down the road anyway, while Greece burns. The ECB, EU and IMF knows this. Greece is bankrupt. $14 billion in bond redemptions are due this March and they can't even afford that. Is all that austerity really worth it?

..........debt forgiveness is a very sensible first step. This cannot go on. Austerity can come later after debts have been wiped/forgiven if necessary, along with reforms. Any prospect of economic growth with a MASSIVE debt overhang like Greece's is impossible...

Greece's creditors should have known better. They have engaged in very unsound practices, being lenders and all.

Remember the subprime crisis in the US? Creditors were throwing loans to the most financially unsound borrowers, to make a quick buck. I see an uncanny resemblance here. Greece's creditors (being maninly Euro banks in France and Germany, that's right, fiscally sound Germany!) had leverage ratios of 40:1 at the time. What did they think, that Greece, with all its olive oil and tourism, could justify its near-zero interest rate spread over and above "riskless" Germany's? For how long? In the back of their minds they surely must have thought something along the lines of:

Greece is in the Eurozone.

Eurozone countries have great credit ratings, they can't possibly fail! (the Euro is backed by good old Germany)

Lets lend to Greece at the (near) identical rate as Germany.

Sorry but I do not have any sympathy for the creditors. They brought us to this entire mess by flooding the world with bad credit.

Why do you think that we have been hearing this absurdity about "VOLUNTARY" (i laugh every time) debt haircuts on Greek debt? The propaganda is there to insist "voluntary" because creditors don't really want a "credit event" (read: default) to trigger a wave of massive CDS payouts, which the lovely jovely sound banking system has totally binged on, these unregulated OTC weapons of mass destruction (remember AIG anyone?). Nobody in the financial industry across Europe really knows who the next AIG is, who holds the hot potato of the most risky positions in the latent, contingent CDS market on sovereign default. Oh dear, creditors...if they only acted like banks, and not casinos...

1) Split the Eurozone. Let eastern and southern european countries issue their own currencies, pegged to the euro.
2) Let them have their own central bank and independent monetary policy.
3) Impose capital controls. (So speculators and wild, volatile and now as we know it - market-failure prone financial markets will not be able to screw a country up like they did to Asian countries during 97'). Boy did those Asians learn fast that hot money means a train wreck to their economies. They quickly imposed capital controls post-97.

That should satisfy the impossible trinity.

4) Forgive their debts. Yes, good old forgiveness is the only way forward. The situation demands it, I think. Screw the creditors, - they took the risks to lend to shaky nations and so need to face up to their mistakes. There was an old saying, "to every foolish borrower, is a foolish lender".

5) Keep the euro for - Germany and a few fiscally disciplined northern nations. Lets face it, the Euro derives its confidence from Germany - the ECB after all bases its interest rate chiefly on German inflation. The splitting of the Eurozone will save the north from bailing out the south, maybe intra-european trade might be adversely affected due to exchange rate risks again, but that will go a long way in allowing the trade imbalances to correct again. The south could begin to export more into the north, and beyond.

Any exit from the eurozone will be detrimental for the first few years for sure, as would be a currency redenomination. But I seriously do not think it is viable for fiscally weak countries to remain in the Eurozone.

I've studied economics, and do not think that I have the silver bullet, perhaps my argument does not even sense, - it is rather radical. But we need to start throwing ideas around.

This makes a lot more sense than most of the so called "solutions" that have been proferred in endless EU summits over the last while. Therefore it is doomed to be ignored as it doesn't fly politically. This will drag on until something catastrophic happens, e.g. Italy and Spain are shut out of the bond markets, and then the Germans will have a huge mess to clean up.

What's happening now is like treating throat cancer by telling the patient they can't smoke anymore - all very well but if the tumour is not removed it will spread and kill him.

Modest Mario gave the finance industry the largest free lunch ever, with the recent ~500 bn euro LTRO, and the next one with an even higher volume by the end of february. Sum in total will be around 1.2 trillion. The ECB hands the money out at an interest rate of 1%, the banks lent it on, risk-free, for ~4,3%. Over time, this accumuluates to an extra proft of ~250-300 bn euro.

But what did one expect from a Goldman Sachs guy? It was clear he will make sure the finance industrie's profits and bonuses are secured, may it cost the taxpayers what it wants.

And Wall St - Goldman, Citi, JPMorgan et al are complaining about the loss of Euro business, supposedly because of European weakness....

Maybe another reason for the loss of Euro business is that if you try to impoverish and screw over your customers, and if you sell them crap products, then your customers stop wanting to be your customers?

Wrap up warm London (and NY) a lot of that business will not be coming back even after the snow stops falling.

What the Euro crisis is all about: and why The Economist (PR department of the City and those bankers we love to hate) cares about it.

Wall St and the City need yet another bailout, this time from the German taxpayer.

A Wall St banker quoted by Matt Taibbi in Rolling Stone:
"Wall Street people complain a lot, but in the last six months, ... the comments I’ve heard have been more like, "My asshole has been puckered completely shut for four months in a row over this Europe business," or, "If the ECB doesn’t come up with a Greek bailout package, I’m going to have to sell my children for dog food."

I think if I was a Greek I would be pushing for a default. It would at least draw a line under this crisis and uncertainty for them and their business community. There's nothing worse for business than uncertainty.

we in Ireland have already done or had already all of the above, except for privatisations. "Raising" the pension age to 65? That's a joke right?

Also, free childcare? Free health service? Free dental? We have none of this. The only thing we had in the past was lower personal taxes than most other EU states - so as long as you have no kids, never get sick or old, it's great !!! Now we don't even have low taxes anymore. So now we have Scandinavian taxation with US style welfare. Great.

Our govt have literally stuck to the letter of our programme, even exceeding it in some areas. So I have no sympathy anymore for Greece.

I'm sure the Turks would be overjoyed at that prospect. After what the Greeks have managed to do to the euro - a currency backed by the world's biggest economy - I can't imagine any other country would be too pleased to share with them.

The ECB should be allowed to run Greece's economy and be given a larger mandate. The Greeks cannot complain about this since its the responsibility of the politicians and the banks which had led to this precarious situation that it finds itself in. The ECB cannot be strict on Greece regarding foregoing profits on Bond purchases since greece does not have the money at all to pay anything. Too much emphasis has been given to the greek bail out deal. Why can't the ECB just accept a major portion of the greek debts themselves to atleast give confidence to the ordinary greeks who are already suffering under severe austerity. The Focus should now be on kickstarting and bolstering growth rather than austerity.Nobody talks about unemployment,social unrest but only on austerity and fiscal deficit. Printing money federal reserve style is the only way to overcome this problem even if it is a bad policy.

Mais non MilovanDjilas! Certainly I did not mean to brand Mr. Draghi a thief. The phrase," It takes a thief to catch a thief" meaning “no one is better at finding a wrongdoer than another wrongdoer.”explains how we have the right person running the ECB. The wrong doer in this case were the successive Italian governments which exploded the country's debt. The reason Mr. Draghi is a good leader of the ECB is that having performed well at Italy's central bank he understands how best to deal with indebted euro countries.

The euro has severed the link not only to gold but also to the nation-state,
said ECB president Duisenberg in 2002
(International Charlemagne Prize of Aachen for 2002
Acceptance speech by Dr. Willem F. Duisenberg, President of the European Central Bank, Aachen, 9 May 2002http://www.ecb.int/press/key/date/2002/html/sp020509.en.html

The ECB is the guardian of the euro,
not of the indebted euro nation-states.

If those natrion-stes fail, the euro will not suffer,
because the euro has severed the link to them..

the euro zone crisis now looks far less scary than it did three months ago?

What? Nobody here has a knowledge of the Austrian theory of the business cycle?

We’re all Keynesians now?

http://bphouse.com/honest_money/2009/08/17/islamic-finance-and-boom-bust/
SNIP
The cause of business cycles with boom and bust is central bank stimulation of bank credit expansion by expanding central bank liabilities and therefore the cash reserves of all the nation's commercial banks. The banks then proceed to expand credit and hence the nation's money supply in the form of check deposits.
Business cycles are therefore not rooted deep within the free-market economy and booms and then busts do not just simply happen. But one phase of the cycle flows logically from the other.
The initial phase from which everything follows central bank stimulation of bank credit expansion.
It is inflation, especially in the form of credit expansion, that sets the stage for financial contractions and deflations – i.e., for depressions.
By inflation, entrepreneurs misallocate capital resources into areas that would not attract investment if the money supply remained stable. )
This misallocation is called “malinvestment”.

Ivo Cerckel: "What? Nobody here has a knowledge of the Austrian theory of the business cycle? We’re all Keynesians now?"

Actually, the Germans would say, No idiot, Freiburg, Freiburg! They appear to be trying to export their model to less productive countries. Also, the "business cycle" does not explain everything. Too much reductionism.

If the euro zone crisis now looks far less scary than it did three moths ago, it is thanks in large part to Mr Draghi rather than the ECB. It takes a thief to catch a thief meaning that a thief knows how a thief thinks. Having successfully lead the Italian central bank Mr Draghi knows how to deal with the over- debted peripheral euro nations

Please allow me to say that Mr. Draghi is no thief. He is an honest technocrat with vast and varied experience who did much to restore the Bank of Italy to its traditional prestige after the debacle of his predecessor Antonio Fazio (who amongst other things, as an exponent of Opus Dei, represented the apex - or nadir - of religious interference in the economic administration of Italy.)

I very much doubt Djilas would have had anything good to say about the current Montenegrin leadership...

Partially Serbian and...? Have you ever been to Trieste? Our historic Serbian community numbered only about 4000 in the 80's, but during and since the wars the community has jumped to almost 10,000 now. Are you familiar with the Saint Spiridon Serbian Church on our central canal/square?

I do not know if You are informed, but current mayor of Belgrade has the same surname (Dragan Djilas). Given the leadership in Montenegro, it is very confusing now to make a clear distinction between Montenigers and Serbian, if there is a need to do so, at all.
Thank You for links and kind words. I will take a look now at them, and, no, unfortunately, I have not been in Trieste or Italy, although I would like to visit.
Hope it will be soon, after the solution regarding crisis in Greece (I live in Greece, so now it is tricky to plan anything, although I do hope it will become better, under certain considerations).
And, not to be completely off - topic, my personal stance is that Mr. Draghi is doing proper job so far.

Mr ZeFox you should watch your mouth before talking foolishnesses .... Mr Draghi is the most prepared central banker that European Union could have right now.... And I do not know both why you said that and where are you from, but offending people and a country is a symbol of disgusting ignorance..

The acceptance of potentially "toxic" collateral, called corporate loans, primary from periphery banks, albeit with a big 65% haircut (possibly saying somthing about the quality), with the part of the default risk borne by respective national banks (rumor has it, the German Bundesbank has explicitly forbidden German Banks to participate).

The Austrians are "in", I guess because of the trouble for their banks in Hungary. Additionally the Irish, Spanish, Portuguese, Greek and Cypriotic Central Banks. And as a surprise (or not?) also the French central bank: that smells like big French banking problems.

Surprisingly, the Italian central bank does not allow the toxic collateral...

You are right about Italy. Add to this that the Italian banks belong to the most sophisticated in Europe. They didn't have too much trouble after the mortgage crisis either, unlike the banks everywhere else. I have family members working in the banking industry and I was informed that the Italian banking sector is better developed than the German one, for example (but I don't know if thats a good benchmark to look at)

Not in position to compare - however, to the cynical corner of my mind, the state - or non state - of the German banking industry is the only feasible explanation why Angie is not pulling the Greek plug....

Did you notice that "German goverment rescues German Banks Fund was quietly re-activated recently?

Yes, I noticed that, it's called "Soffin". They prepare for a Greek default. I don't think that the German banks are in a too bad shape any longer because if there is no Greek default, none of them is going to need any Government support to meet the new capital targets despite the planned Greek hair cut, not even the troubled Commerzbank. But if Greece defaults, some banks might shake, esp. because of the CDSs (Deutsche Bank seems to have sold some). But still, that's cheaper than throwing more taxpayers' money into the Greek hole I guess. And if Greece defaults, some US banks will shake as well because they are highly involved in the CDS business in Greece ...

Well, Ackerman even refused to participate in the LTRO because his bank didn't need it. Mario Draghi called him yesterday during the press conference indirectly a "macho", saying some bankers (meaning Ackerman) seem to need to show their masculinity for talking bad about the program! LOL

The ECB is printing (LTRO plus easier collateral rules) because the Bundesbank is running out of assets. Too true. Why is that? Because the German TARGET 2 balance is hitting Eur 500bn (aka receivables from other EZ members), and counting.......

This time, without prejudice in regards to past or future cases - it is not a German fault - it's the other central banks you cannot/will not pay the Bundesbank... the latter being borrowing from German Banks to finance periphery deficits...

The French are participating in the latest "good Euro's, newly minted - against collateral that is considered to need a 65% haircut, whilst Italy and Germany are not paricipating?